Successful investors always seek to get market beating returns by swimming against the tide. Warren Buffet’s oft quoted maxim seems particularly relevant to the COVID era: “be fearful when others are greedy and to be greedy only when others are fearful.”
Certainly, when faced with a black swan event, when normal investment strategies seemingly evaporate, it is difficult to know where to turn. Indeed, the year to date figures at time of writing make for grim reading: the FTSE 100 is down 26% and the S&P 500 has delivered an underwhelming 1%. Luckily there are a small number of assets which have shown phenomenal growth and are increasingly considered safe havens.
There are some well-established reputable cryptos that have bucked all trends. Bitcoin is up 81%, Ethereum is up 207%, and Litecoin is up 37%. Stirring stuff, and it is a powerful argument for a small amount of diversification into, say Ethereum, when it would take more than 400 years to achieve the same returns as the via the S&P500 at its current rate of growth!
Recent weeks have seen strong performance in these coins. Interestingly Paypal this month confirmed that they will add these coins to their platform; the addition of 340 million users coming to the table cannot be underestimated. For context, Bitcoin currently has 32 million non-zero addresses, effectively 10xing the potential audience.
Unsurprisingly, a good number of institutional buyers have had reason to sit up and take notice and have starting to use bitcoin as a hedge against inflation.
The asset manager Stone Ridge Holdings Group has purchased 10,000 BTC (approx. £88m at the time of writing) as a “primary treasury reserve asset”. Microstrategy has purchase $425m worth of BTC, and Square has invested $50m. Mode Global Holdings, a London Stock Exchange-listed company, has announced plans to make a substantial purchase, as it looks to convert 10% of its cash holdings as part of a strategy “protect investors’ assets from currency debasement.
Grayscale Investments, whose clients are mainly institutional and professional investors, announced a record quarter, with over $1 billion raised in three months, more than four times the amount for the same quarter last year. Even the investment banks have had reason to pause on their usual scorn: JP Morgan issued a research note on bitcoin stressing the “vote of confidence”.
Interestingly there seems to be an emerging trend to talk about crypto and precious metals in the same breath. Indeed, champion of personal wealth creation/preservation, Robert Kiyosak has given some depressingly short and snappy advice: “Do not save. Buy gold, silver, bitcoin. Dollar is dying”.
Certainly, precious metals seem to be enjoying a moment in the spotlight once again. Even Warren Buffet himself, traditionally far from a fan, has bought into the gold miner Barrick Gold. The year to date figures are appealing; gold is up 25% and silver is up 29%.
Interestingly a lot of the dialogue around crypto is about wealth generation, whereas precious metals investors tend to focus on wealth preservation. Regardless, to be returning to assets that have been used as a store of value for a few millennia probably says a lot about our current global economic situation.
In conclusion, extraordinary events require extraordinary strategies; fail to diversify at your peril! It will be interesting to see if and when we return to “service as normal”, and whether the traditional asset classes make up the ground they have lost. With much talk of a global economic reset it is most certainly fascinating times.